Study on the concession and damping equilibrium of duopoly strategic output based on bounded rationality and knowledge

Abstract

The fatal weakness of the classical Cournot oligopoly model and current output-decision-making models is the supposition that player always pursues the maximum of present interest. This paper establishes some new hypotheses, including goal supposition, time-order assumption, bounded rationality and finite knowledge hypothesis, and constructs a generic model for realistic decision-making situations. The model should better fit into real strategic decision-making process between the leader and follower oligopolies (i.e. companies or players). Moreover, the arithmetic method, natures and characteristics of output decision-making are well studied in this research. This research gives and proves ten important propositions and four relevant deductions. The conceptions of damping loss and total damping cost of a completely dominated marketplace by the leader oligopoly are proposed; relevant algorithms and examples are also provided.